Second Cup Announces Major Restructuring to Enhance Franchisee Profitability

MISSISSAUGA, ON, June 19, 2014 /CNW/ – Today, The Second Cup Ltd. (“Second Cup” or the “Company”: TSX: SCU) President and CEO, Ms. Alix Box, announced significant first steps in the Company’s revitalization strategy to improve its level of performance, and franchisee satisfaction and profitability. As previously disclosed, Second Cup, the Canadian specialty coffee retailer with more than 350 stores across Canada, has embarked on a journey of transformation to restore the Company to its place of prominence and greater profitability. Initiatives announced today include streamlining the organization and changing the Second Cup franchise economic model.

Coffee Central Re-engineered
After a complete organizational review, the Company has taken steps to reduce its infrastructure. This right-sizing of the Company was achieved by re-engineering its office, known as Coffee Central, in Mississauga to a more focused team, streamlining roles and responsibilities and creating new high-performing, multi-disciplinary positions. The Coffee Central team is being reduced from 77 to 53 employees. As part of this initiative, the Company expects to record one-time charges of approximately $1.5 million, mainly related to severance expenses, during the second quarter of 2014 and yield savings of approximately $2.3 million annualized.

“If we look back at the history of Second Cup, the Company had more stores and operated more effectively with a smaller Coffee Central team and lower overhead,” says Ms. Box. “With this review we are correcting the imbalance and getting back to our entrepreneurial roots with a more efficient team who will make faster decisions and provide more responsive and better service to our franchisees. Our new team is 100% dedicated to delivering the best specialty coffee experience and maximizing the long-term success of Second Cup.”

Benefiting Franchisees
Second Cup plans to redeploy the reduced expenses of approximately $2.3 million annualized to increase franchisee profitability. This profit improvement is expected to result from a combination of royalty reductions, co-op marketing fee reductions and procurement savings. A typical store is expected to increase its annual profitability by approximately $14,800. Management believes these changes to the economic model will offset the expense savings and will have no impact on Second Cup’s operating income. Building franchisee trust and improving store sales and profitability are two immediate priorities for Second Cup and today’s announcement is a positive first step in this direction.

“Second Cup is very fortunate to have passionate and dedicated franchisees and our goal is to build on this passion,” says Ms. Box. “We believe that this change in fee structure will have a meaningful impact on franchisees. We also believe it will go a long way toward rebuilding trust with our franchisees, which will in turn spawn future growth.”

“This new fee structure shows that the organization is committed to re-instilling a collaborative and transparent relationship with franchisees. We were told this would be a year of change, and today is a great new beginning for the future of Second Cup,” says Terry Lee, a Hamilton franchisee and co-chair of the Second Cup Advisory Council.

“Reducing fees to benefit franchisees clearly demonstrates that Coffee Central is listening and is focused on returning Second Cup to greater success,” adds Ash Pescott, an Edmonton franchisee and co-chair of the Second Cup Advisory Council.

A Revolution, Not an Evolution
“This is just the start of our transformation at Second Cup and it is both exciting and necessary for long-term value creation,” adds Ms. Box. “The revitalization of the brand will be a revolution, not an evolution. Our journey will take time and while our objectives are aggressive, they are achievable. Today represents an important first step towards our goals, and we will now focus on creating the new Second Cup store of the future and developing our strategic plan to build for future greatness.”

About Second Cup
Founded in 1975, The Second Cup Ltd. is a Canadian specialty coffee retailer operating more than 350 stores across the country. All of the approximately 4,000 Second Cup baristas are trained coffee experts who handcraft over 1 million coffee and tea beverages every week, and are committed to ensuring excellence in every cup and the very best customer experience possible. For more information, please visit www.secondcup.com or find us on Facebook and Twitter.

Forward-Looking Information
This news release contains forward-looking statements within the meaning of Canadian securities laws, including statements regarding Second Cup’s intention to reduce its workforce, change its franchise economic model, improve relations with franchisees and grow its business, as well as the related financial impact of such initiatives. The terms “expects”, “plans”, “will”, “should”, “believe”, and similar terms and phrases are intended to identify these forward-looking statements. Forward-looking statements are based on estimates and assumptions made by Second Cup in light of its experience and other factors that Second Cup believes are appropriate in the circumstances, including its expectations regarding the costs and benefits of the proposed restructuring. Many factors could cause Second Cup’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including risks associated with: Second Cup’s ability to implement and realize the anticipated benefits of the restructuring; Second Cup’s ongoing relationships with its franchisees; the potential impact on Second Cup’s ability to grow; and other risk factors relating to Second Cup’s business and environment referenced in the “Risk Factors” section of Second Cup’s Annual Information Form and MDA (copies of which filings may be obtained at www.sedar.com). These factors should be considered carefully, and readers should not place undue reliance on Second Cup’s forward-looking statements. Second Cup has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.